In this DechertOnPoint, we summarise HM Treasury’s work to establish effective resolution arrangements for investment banks and firms, which resulted in the introduction of a special administration regime (“SAR”) earlier this year.
HMRC is leading an increasingly tough stance against owners of businesses that have failed to pay their taxes before going bankrupt, says City law firm Wedlake Bell.
Figures from the Insolvency Service reveal that in the last year Bankruptcy Restriction Orders (or equivalent undertakings) were obtained against 443 bankrupts because of neglect of their business - a majority of which were alleged to have consistently failed to pay taxes to HMRC. This was an increase of 21% on last year and concern actions taken against sole traders and partnerships (Year ending March 31).
Independent Insurance Co Limited (In Provisional Liquidation) v Aspinall and another UKEAT/0051/11
Independent Insurance Company - IIC- went into provisional liquidation in June 2001. Half of its employees were made redundant including Mr Aspinall and Mrs O’Callaghan. They issued proceedings claiming a protective award when IIC failed to comply with its collective consultation obligations, consult with employee representatives or arrange for necessary elections.
Recent remarks by the English High Court in the insolvency case Green (Liquidator of Stealth Construction Limited) -v- Ireland [2011] EWHC 1305 (Ch) suggest that in some circumstances, and at least in the context of fast-moving real property transactions, an exchange of emails may well satisfy the requisite formalities for creation of a binding and enforceable contract.
Sections 216 and 217 of the Insolvency Act impose draconian sanctions on directors of liquidated companies who reuse "prohibited names". Prohibited names are names that are identical to, or "suggest an association with", a company that has gone into liquidation and of which they were previously directors. The sanctions include criminal penalties and personal liability for debts. It has always been difficult for advisers to confidently advise directors whether a proposed name for a new company would be a prohibited name, given the vague nature of the phrase "suggest an association".
Lending to a foreign company? If you choose English law to govern your facility documents and provide for the English court to have exclusive jurisdiction, an English scheme may be a viable means of restructuring the debt later, if the need arises.
Summary
FSA is consulting on the need for certain financial services firms to prepare and maintain Recovery and Resolution Plans (RRPs) and in addition for some of these firms, and others, to make further preparations for their investment client money and custody assets (CMA) holdings.
Why now?
Belmont Park Investments Pty Limited v BNY Corporate Trustee Services Limited and another [2011] UKSC 38.
The Supreme Court has clarified the extent to which it is possible for a contract to provide for a company or individual to lose assets on insolvency.
Summary
Well-established rules are unchanged, so landlords can still forfeit leases on insolvency. In other cases, if a transaction is entered into in good faith and for valid commercial reasons, it is likely to be upheld.
In 2002 a European subsidiary of Lehman Brothers created a complicated synthetic debt structure called Dante, which was intended to provide credit insurance for another subsidiary, LBSF, against credit events affecting certain reference entities, the obligations of which formed the reference portfolio. A special purpose vehicle issued notes to investors, the proceeds of which were used to purchase collateral which vested in a trust. The issuer entered into a swap with LBSF under which LBSF received the income on the collateral and paid the issuer the amount of interest due to noteholders.
Thor Maalouf, an Associate in the London Shipping Group, considers some of the issues which may arise where a party to a charterparty becomes insolvent.
INSOLVENCY ALONE IS NOT ENOUGH TO JUSTIFY TERMINATION